Ned Davis Sees More Trouble Ahead For Value Investors: Here’s How To Cope

By Teresa Rivas

It’s been a rough six months for value investors. As Ned Davis Research notes, most value strategies have logged negative returns for the last half year.

Yet the pain is likely to continue, argue Brain Sanborn, Till Wieczorek, Thanh Nguyen, and Dung Nguyen. Not only does the firm’s research favor growth strategies over value ones, but historically the deck seems stacked against the latter: After short-term selloffs in the market, most value investors lag behind their growth peers in the following rally, while NDR’s studies show that value strategies typically don’t drive stock returns leading up to a market peak.

Yet value investors do have a couple of options, they write. One is simply patience: “If the market suffers a large drawdown or cyclical bear this year, the multiples would likely get cheaper and set the stage for a deep-value, reversion bounce after the market bottom.”

For investors that want to be more proactive, Saborn and his colleagues suggest focusing on shareholder yield and lower free cash flow multiples, as these strategies have seen the best returns in the value space of late, and have been shown to turn in the strongest performance over the long term as well.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.